FHA loans are designed to help first-time home buyers and people with low credit scores to get a government-backed loan to purchase a home. Mortgage News Channel offers a brief overview of the program and FHA loan requirements for obtaining one.
What is an FHA Loan?
An FHA Loan is a mortgage that is backed (guaranteed) by the Federal Housing Administration (FHA). You can get financing with a down payment as low as 3.5% and benefit from low interest rates.
Note: The FHA does not actually make loans. A bank or lending institution still makes the loan. It is guaranteed or insured by the FHA.
FHA Loan Requirements
FHA loan eligibility is based on a number of qualifications. You will need to go through the FHA loan approval process, which can be challenging. With the right information, you will know right away if you have what you need to comply and proceed forward.
FHA requirements:
- You must have proof of a reliable income. Generally, two paycheck stubs or a recent tax return will be enough.
- The home has to be appraised by an FHA-approved appraiser.
- You must use an FHA-approved lender.
- You must have a credit score of at least 500. However, to qualify for the 3.5% down payment, your score must be at least 580. A score between 500 – 579 will qualify for a 10% down payment.
- You must have a reasonable debt-to-income ratio. In simple terms, your debt and monthly mortgage should be under a certain percentage related to your income. It is best to be below 43%.
- If you have ever declared bankruptcy, then you must be out of bankruptcy for at least two years prior to applying for an FHA loan.
- You must be current with your income taxes and federal student loans.
- The home must be your primary residence. This type of loan is not meant for investors who plan to rent the home.
Advantages of an FHA Loan
FHA Loans make it easier for you to afford a home. There are several advantages that make this type of loan appealing.
- Smaller down payment – Buy a home with a down payment as low as 3.5%.
- You can use other people’s money – If someone gifts you the money to buy a house, it is easier to apply for an FHA loan.
- Assumable loan – Someone else can take over your loan if you sell your home.
- Financial reset – FHA loans make it easier to recover if you have declared bankruptcy.
- Home improvements/repairs – One type of FHA loan will give you money that can be used to renovate or repair the home.
An FHA loan allows you to purchase a home and experience the American Dream, even if your financial situation is a challenge. Look into FHA Loan requirements and see if this option makes sense for you.
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